November 1, 2016
Sime Darby (SIME:MK), a Malaysian conglomerate, signed a 63-year concession agreement in 2009 for 220,000 ha of land to be developed into oil palm and rubber plantations in Liberia. An additional 44,000 ha are to be developed under an outgrower scheme. To date, Sime Darby has planted 10,411 ha palm oil and 107 ha rubber. Our analysis found significant changes in Liberian context since 2009. Customary land rights are entrenched in Liberian legislation and efforts to halt deforestation have increased, heightening risks for Sime Darby’s original aggressive expansion plans. Sime Darby’s undeveloped land bank in Liberia contains high-density forest; thus 45% cannot be developed responsibly. This figure is conservative as it is not adjusted for medium-density forest (an additional 34%) or biodiversity hotspots.

Unresolved issues remain six years after community negotiations started. These long processes create the risk of ‘moving targets’ as previously made agreements can be voided by new developments. Full concession development would require negotiations with an additional 55 communities. This could entail decades of negotiations with uncertain outcomes, and could result in significant delays to project development. Respecting a 2km buffer zone around towns reduces the available area by 20%. Finally, Sime Darby’s share price could devaluate due to restrictions on the concession area. Mainstream investors continue to value Sime Darby’s Liberian project
assuming full concession development.

December 7, 2016Indonesia Strengthens Peatlands MoratoriumThis week, the Republic of Indonesia revised it peatland regulations targeting a permanent peatland moratorium. According to World Resources Institute, this revision to Government Regulation No. 71/2014, in effect, could equal an emissions reduction 5.5 to 7.8 gigatons carbon dioxide of Indonesia’s emissions by 2030.

Contextually, 2015 U.S. emissions from the electric power sector were 1.9 gigatons carbon dioxide. This implies that the Indonesia’s revised peatland regulations is equivalent to removing three to four years of U.S. electric power sector emissions.

Chain Reaction Research conducts sustainability risk analysis for financial analysts and investors. Our special focus is on sectors that deal with environmentally intensive commodities, especially those sourced from tropical regions like palm oil, and pulp and paper.<

We explore whether unsustainable corporate practices and actions have introduced unreported risks – and how or whether sustainability leadership can mitigate those risks and possibly provide competitive advantage. Where possible, we provide pre-IPO checking of claims about risk and assets reported in prospectuses. We also review claims made by publicly traded companies.

Chain Reaction Research has received support, in part, from the David and Lucille Packard Foundation, and from the International Climate and Forest Initiative (NICFI) scheme managed by the Norwegian Agency for Development Cooperation (Norad). Chain Reaction Research statements and materials do not necessarily reflect the standpoints of the Packard Foundation or Norad.